Millennials risk ‘credit chaos’
Two in five millennials – those born between the early 1980s and the early 2000s – are jeopardising their chance of getting a mortgage by missing minor payments on utility bills and other forms of credit, according to a new report.
Research commissioned by credit reference service ClearScore, has found that over one million 18-34- year-olds have completely ignored a bill, and around two-in-five people in this age group have missed a payment.
Final payments on mobile phone contracts and utility bills are the most likely to go unpaid, with about one in eight millennials not doing so.
Other commonly ignored bills include credit cards, store cards and car finance instalments. Particularly worrying was the 2% who said they’d defaulted on a mortgage repayment – putting them at risk of losing their homes.
Read our guide to Managing your credit score.
‘The consequences of defaulting can be huge’
But despite these missed payments typically being quite small – averaging just £7.60 – almost a quarter of those who’d missed a bill wrongly thought it didn’t matter.
Justin Basini, founder and chief executive of ClearScore, says otherwise: “Missing a minor payment may seem harmless at the time, but it can come back to haunt you. The consequences of defaulting on a payment – even it’s just a small amount – can be huge.”
The problem is that defaults can put other off other providers from lending to you, as you’re not seen as trustworthy enough to make repayments – 31% of millennials surveyed said they’ve been denied credit because of a previous default.
What is a credit score?
Equifax, Experian and Call Credit are the three main providers of credit scores in the UK. They collect data and provide an indication of how lenders are likely to lend to you, and at what price.
Each will provide a one-off report for a couple pounds. They’ll also provide a free copy of your report if you sign up for a trial of their services – but if you don’t cancel within the trial period you’ll be charged around £15 a month afterwards.
Alternatively, ClearScore, which is powered by Equifax, and Noddle, which is powered by Call Credit, will provide access to your credit information for free.
See how credit scores compare across the UK with our interactive map.
Your credit score is a three-digit number (ranging from a low of 300 to a high of 850) calculated from the information in your credit report. Your credit score enables lenders to determine how much of a credit risk you are. Basically, a low credit score indicates you present a higher risk of defaulting on your debt obligations than someone with a high score. If you have a low credit score, any products you successfully apply for will carry a higher rate of interest commensurate with this risk.